Virginia State Bar

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Trusts and Estates

A Section of the Virginia State Bar.

Fall 2014 Newsletter

Newsletter - Trusts and Estates

Volume 22, No. 11

The Use of Alternative Dispute Resolution in Estate Planning and Administration
By Jennifer & Jerad Tomac

“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out
to them how the nominal winner is often a real loser -- in fees, expenses, and waste of time. As
a peacemaker the lawyer has a superior opportunity of being a good man. There will still be
business enough.”1

Abraham Lincoln – 1850

As trusts and estates attorneys, we often find ourselves at the crossroads of salient legal issues and our client’s emotions. Dealing with death and incapacity has a tendency to bring painful, unresolved family issues to the forefront. In two of my client meetings today, the clients spent 75% of the time talking to me about topics and facts that are, legally, completely irrelevant. They delved into their childhood, their spats with family members, their goals for the future and, in one case, the diverse wildlife they frequently encounter outside their new home. These meetings are not unusual. These cases present a unique opportunity to help clients solve their legal disputes while also assisting them in resolving (or at least not exacerbating) the underlying emotional and family issues. As Abraham Lincoln pointed out, as attorneys and counselors at law, we have “a superior opportunity” to be peacemakers. One of the primary ways we can do this is by helping our clients choose the means of dispute resolution that will be most advantageous for their particular situation.

This article takes a brief look at the historical and current uses of Alternative Dispute Resolution (“ADR”) in the United States at large, as well as locally, in Virginia. Building on these ideas, this article suggests reasons why judges and attorneys should offer ADR options to parties dealing with trust and estate issues.

The History of Alternative Dispute Resolution

Throughout much of history, the modes of dispute resolution that we today refer to as “alternative” were the primary means of problem solving. Prior to the establishment of formal judicial systems, the ancient Egyptians, Phoenicians, and Greeks, to name a few, utilized various forms of arbitration and negotiation to resolve disputes.2 Much like the more formal aspects of our judicial system, the use of ADR in America can be traced to the English common law practice whereby, as early as the 11th century, parties would agree to have an upper-class male within their village hear their grievances and issue a decision. In lieu of a formal hearing, the king would then ratify the decision of the local decision-maker.3

This more private, localized system of dispute resolution was continued by the Pilgrim colonists during the early days of the settlement of the American colonies. Having just crossed an ocean to escape the control of what they believed was a corrupt and oppressive government, the colonists utilized local informal arbitration to resolve the majority of their disputes.4 Unsurprisingly, this preference for party driven dispute resolution quickly found its way into the framework of America’s new government. As early as 1790, Congress established arbitration as the primary means of dispute resolution within the federal government by including arbitration provisions in legislation such as the Patent Act.5 Although the federal government and many state governments used ADR to resolve the majority of governmentally related issues, it was not until the 1920s, with the passing of the Federal Arbitration Act, that U.S. Courts were expressly authorized to recognize and enforce private parties’ agreements to arbitrate and arbitration awards.6 The Federal Arbitration Act spurred the use of ADR in the private sector by ensuring that courts would enforce arbitration clauses and ratify arbitrated remedies.

Alternative Dispute Resolution in Virginia

In 1987, Chief Justice Harry L. Carrico created the Commission on the Future of Virginia’s Judicial System and charged the Commission’s thirty-four members with developing a vision and a plan for the future of the Commonwealth’s judicial system.7 The Commission’s report, issued in 1989, included ten recommendations, or “visions,” that Virginia’s judicial system needed to focus on in order to meet its core mission of justly resolving disputes.8 One of these visions, “Vision Three,” centers on the idea that, in order to best serve its citizens, the judicial system needs to offer mechanisms that instead of simply deciding the case, seek to resolve the parties’ dispute.9 Acknowledging that the court process is not always the most efficient or appropriate method to resolve parties’ disputes, the report states that the judicial system must offer alternative dispute resolution programs.10 In 1991, in an effort to combat the presumption that litigation is always the preferred means of dispute resolution and to provide ongoing support to local courts seeking to implement alternative dispute resolution systems, the Supreme Court of Virginia created the Department of Dispute Resolution Services (the Department) within the arm of the Office of the Executive Secretary.11 The goals of the Department include:

• to develop within the judicial system a range of options that provides the capability of resolving disputes in a manner most effective for the dispute involved;

• to encourage and promote the use of alternative dispute resolution in all judicial circuits and to investigate funding sources for such programs;

• to develop, where appropriate, and evaluate experimental or pilot alternative dispute resolution programs;

• to provide training and education programs to alternative dispute resolution practitioners, court personnel, law enforcement personnel, businesses, students, members of the bar, judges, and the general public; and

• to determine to what extent the use of alternative dispute resolution programs may reduce the civil workload of Virginia courts.12

With these goals in mind, the Department identified seven dispute resolution options that it encouraged local courts to explore and develop in order to best serve their citizens. The options range from very informal to very formal, and involve varying degrees of party control. Generally, the more informal the process, the more the parties control the outcome. In order of formality, from least to most formal, the Department identified the following dispute resolution options:

(i) conciliation;

(ii) mediation;

(iii) early neutral evaluation;

(iv) summary jury trial;

(v) arbitration;

(vi) settlement conference; and

(vii) adjudication.13

Over the past twenty years several jurisdictions have implemented successful ADR programs in courts throughout the Commonwealth.

1. Conciliation. In Fairfax County Circuit Court, as a part of the Conciliation Program, experienced litigators volunteer their time to help parties resolve preliminary motions and petitions. The conciliator does not decide the matter for the parties, but makes reasoned recommendations to aid the parties in resolving the issue. The program has been very successful, with approximately 85% of matters reaching some degree of resolution without further court intervention. 14

2. Mediation. Courts in Prince William County, the City of Richmond, and Henrico County have Dispute Resolution Coordinators in the courthouse who screen cases to determine whether a case is appropriate for mediation and conduct orientation sessions to educate prospective parties about the mediation process. Over the past ten years, an out of court agreement has been reached in more than half of the cases where mediation was attempted.15

3. Neutral Case Evaluation. The Fairfax and Fauquier County Circuit Courts have established Neutral Case Evaluation Programs where judges or experienced attorneys act as neutral facilitators, meet with parties and their respective counsel in a settlement conference setting, and provide an honest evaluation of the case. The programs have been very successful, with less than 20% of cases proceeding to trial.16

In addition to the options above, Section 8.01- 576.5 of the Virginia Code permits judges, on their own motion, to refer any contested civil matter to an ADR orientation session. Upon receiving the referral from the judge, the parties must attend an orientation session to learn about the ADR options available to them. Every year Virginia judges refer approximately 12,000 cases to ADR, the vast majority of which are family law cases dealing with divorce and child custody.17 There is no reason that this propensity for ADR could not be extended to trust and estate cases, which bear so many similarities to those which are traditionally thought of as “family law” cases.

The ever-growing awareness of the potential advantages of ADR is evident in the Virginia State Bar’s Professional Guidelines. The comments to Rules 1.2 and 1.4 provide that attorneys have an ongoing duty to communicate to the client the “advantages, disadvantages, and availability of dispute resolution processes” that would aid the client in achieving his/her goals.18

ADR Use within the World of Wills, Trusts, and Estates
Estate and Trust Administration

Virginia’s Uniform Trust Code specifically authorizes a trustee to “[r]esolve a dispute concerning the interpretation of the trust or its administration by mediation, arbitration, or other procedure for alternative dispute resolution.”19 In addition to determining the substantive law applicable to the matter, attorneys should always consider the dispute resolution process that is best suited for the case, and present the clients with information regarding the dispute resolution options available to them. Choosing the correct process for resolving the dispute substantially affects the likelihood that the client will be pleased with the outcome of the case. As mentioned above, over the past twenty years, judges and attorneys have increasingly recognized that the intensely personal nature of family law cases, paired with the fact that most of the time it is necessary for the parties to maintain some type of personal relationship, makes family law cases uniquely well -suited for the less formal, more partydriven dispute resolution options, such as mediation. The same can be said of the majority of trust and estate cases.

ADR experts have found that the following factors increase the likelihood that a case is well suited for mediation:

(i) the emotions of the parties are intense and are preventing a settlement;

(ii) there is a need or desire for the parties to maintain an ongoing relationship;

(iii) communication between the parties is poor;

(iv) misperceptions or stereotypes are hindering productive exchanges; and

(v) the parties perceive their interests as incompatible. 20

Like traditional family law cases, the intensely personal nature of the issues involved in administering a will and/or trust, make these cases well-suited for ADR. Much of the time, estate and trust administration cases revolve around emotions as much as facts, and the time and money required to litigate the matter often leaves both parties tired, frustrated, and unsatisfied. Additionally, litigation’s intensely adversarial nature often guarantees that parties who started out disliking each other will loathe each other by the time the case is over. Meditation, on the other hand, can be tailored to meet the parties’ needs; it can be scheduled anytime, is a much shorter process, and costs significantly less. Perhaps even more important, it is collaborative in nature, as opposed to being adversarial; the parties are encouraged to design their own solution. The self-determinative nature of mediation can significantly reduce the winner/ loser dichotomy that parties feel when they receive a litigation verdict and therefore assist the parties in maintaining a working relationship.

Another significant benefit of ADR is that the parties are able to choose the person(s) who oversee(s) the decision-making process. Most Circuit Court judges will readily admit that they are not experts in trust and estate matters. Indeed, Virginia has long acknowledged the benefit of having an available decision-maker with extensive knowledge of estate administration laws and procedures; that is the essence of Virginia’s Commissioner of Accounts system. Appointed by the judges of the Circuit Court, the Commissioner of Accounts for each judicial circuit is a seasoned attorney with years of experience in the area of trusts and estates. Section 64.2-1209 of the Virginia Code gives all parties interested in the administration of an estate the option of presenting their grievances in a hearing before the Commissioner instead of filing suit in the Circuit Court. Generally more informal in nature and utilizing relaxed evidentiary standards, the hearings often resemble a mediation/arbitration hybrid. If, at the close of the hearing, the parties are unable to reach a mutually agreeable settlement, the Commissioner will issue the Commissioner’s findings in a report that, once confirmed by the Circuit Court, is binding on the parties.21

While Virginia’s unique Commissioner of Accounts system provides many families with the opportunity to resolve estate administration issues in a less formal, less adversarial, less expensive fashion, this option is only available in matters that are before the Commissioner for review.22 Therefore, a Commissioner cannot hear matters relating to: (i) estates under $50,000, where accounts have been waived; (ii) testamentary trusts, where accounts have been waived; and (iii) revocable trusts. That being said, disputes that arise in connection with these matters are extremely similar in nature to matters resolved every day in the mediation/arbitration hybrid format of a Commissioner’s hearing and, as such, provide attorneys and judges with an excellent opportunity to encourage parties to explore the use of ADR options to resolve their disputes.

Estate Planning

“But having endeavoured to be plain, and explicit in all Devises–even at the expence of prolixity, perhaps of tautology, I hope, and trust, that no disputes will arise concerning them; but if, contrary to expectation, the case should be otherwise from the want of legal expression, or the usual technical terms, or because too much or too little has been said on any of the Devises to be consonant with law, My Will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chosen by the disputants–each having the choice of one–and the third by those two. Which three men thus chosen, shall, unfettered by Law, or legal constructions, declare their sense of the Testators intention; and such decision is, to all intents and purposes to be as binding on the Parties as if it had been given in the Supreme Court of the United States.”23

Last Will and Testament of George Washington - 1799

This early example of an estate planning arbitration clause was written by President George Washington, and can be found in his Will, which is on display in the Fairfax County Circuit Court archives.

As President Washington’s Will makes evident, the use of arbitration clauses in wills is not a new practice; however, despite its historical use, it is not a widely used practice. This is due in large part to the unresolved question of whether mandatory mediation/ arbitration clauses in wills and trusts are binding on the beneficiaries. Although most U.S. courts favor arbitration, the enforcement of the clauses has historically been limited to contract cases where all parties involved in the dispute consented to arbitrate disputes arising under the contract. Because beneficiaries are not typically signatories to wills and trusts, courts have been reluctant to enforce arbitration clauses against beneficiaries who wished to litigate their dispute.24 A few states, including Arizona and Florida, have recently enacted legislation authorizing mandatory arbitration clauses in wills and trust.25 In addition, a few state courts, including those in Texas and California, have recently issued decisions enforcing arbitration clauses in trust documents.26

In Virginia, while it is clear that fiduciaries may elect to settle disagreements via ADR,27 it is not clear whether courts will enforce a mandatory mediation/ arbitration clause within a will or trust. Nonetheless, including such a clause in a will or trust could be sufficient to encourage squabbling beneficiaries to attempt to resolve their dispute in the manner prescribed by the testator/grantor. Attorneys interested in discussing this option with clients are encouraged to look at the American Arbitration Association’s sample clauses and suggested wills and trusts arbitration rules.28

By encouraging potential litigants to attempt to resolve estate and trust administration disputes through ADR, judges and practitioners can assist families in moving forward in a more amicable fashion, while simultaneously reducing the strain on Virginia’s overworked and understaffed judiciary. Similarly, a well-drafted mediation or arbitration clause in a will or trust can make the difference between a two-year, $200,000 litigation battle where family members never speak to each other again, and a two-month, $2,000 mediation where the family members scream and cry and pout and then, eventually, work out an agreement that everyone can accept. Not every case is appropriate for ADR, but every case presents attorneys with the “superior opportunity” to help their clients understand all of the options available for resolving the dispute in the most peaceable way possible.

 

Jennifer & Jerad Tomac own Tomac & Tomac, PLLC. Their practice focuses on all aspects of fiduciary litigation, as well as estate administration and planning. Prior to opening Tomac & Tomac, Jennifer and Jerad each worked at firms in Fairfax. In addition, both worked at the Fairfax Commissioner of Accounts office for several years.

Jennifer is admitted to practice in Virginia and currently serves as the co-chair of the Wills, Trust and Estates section of the Fairfax Bar Association. In addition she is the President- Elect of the Loudoun Chapter of the Virginia Women Attorney Association (VWAA) and the editor of VWAA’s legal journal – Lex Claudia.

Jerad received his J.D. from the Catholic University of America, Columbus School of Law where he served as a Staff Member of the Catholic University Law Review.

Natives of South Dakota, Jennifer and Jerad, live in Leesburg with their four boys, a bulldog, a cat and a hamster.

(Endnotes)

1. Abraham Lincoln, Fragment: Notes for a Law Lecture (July 1, 1850), in 2 COLLECTED WORKS OF ABRAHAM LINCOLN, 81, 82 (Roy P. Basler ed., 1953).

2. Jerome T. Barrett & Joseph P. Barrett, A History of Alternative Dispute Resolution, available at http://www.adr.gov/events/2009/may7-2009-materials-history.pdf (last visited Nov. 2, 2014).

3. Michael McManus & Brianna Silverstein, Brief History of Alternative Dispute Resolution in the United States, 1 CADMUS J. 100 (2011).

4. Id.

5. Id.

6. Id.

7. Office of the Executive Secretary, Supreme Court of Virginia, About Dispute Resolution Services, http://www.courts.state.va.us/courtadmin/aoc/djs/programs/drs/about.html#overview (last visited Nov. 2, 2014).

8. Id.

9. Id.

10. Id.

11. Id.

12. Id.

13. Id.

14. Office of the Executive Secretary, Supreme Court of Virginia, Local ADR Programs, http://www.courts.state.va.us/courtadmin/aoc/djs/programs/drs/local_adr_prgms.html (last visited Nov. 2, 2014).

15. Id.

16. Id.

17. Office of the Executive Secretary, Supreme Court of Virginia, Twenty-Years of Data from Virginia Court-Connected ADR, RESOLUTIONS, Feb. 2013, at 2, available at http://www.courts.state.va.us/courtadmin/aoc/djs/programs/drs/mediation/resources/resolutions/2013/feb2013.pdf (last visited Nov. 2, 2014).

18. Virginia Rules of Professional Conduct, Comment 1 to Rule 1.2, and Comment 1 to Rule 1.4.

19. VA. CODE § 64.2-778(A)(23).

20. CHRISTOPHER W. MOORE, The Mediation Process: Practical Strategies For Resolving Conflict, 13-14 (2d ed. 1996).

21. See VA. CODE § 64.2-1212.

22. See VA. CODE § 64.2-1209.

23. National Archives, Founders Online, George Washington’s Last Will and Testament, 9 July 1799, available at http://founders. archives.gov/documents/Washington/06-04-02-0404-0001 (last visited Nov. 2, 2014).

24. Nancy E. Delaney et al., Rachal v. Reitz and the Evolution of the Enforceability of Arbitration Clauses in Estate Planning Documents, 27 PROB. & PROP., Nov.-Dec. 2013, at 4, available at http://www.curtis.com/siteFiles/Publications/Rachal%20 v.%20Reitz%20and%20the%20Evolution%20of%20the%20 Enforceability%20of%20Arbitration%20C....pdf (last visited Nov. 2, 2014).

25. ARIZ. REV. STAT. § 14-10205; FLA. STAT. § 731.401.

26. See Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013); Diaz Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. LLC, 282 P.3d 1217 (Cal. 2012).

27. See VA. CODE § 64.2-778(A)(23); VA. CODE § 8.01-581

28. AM. ARBITRATION ASS’N, Drafting Dispute Resolution Clauses: A Practical Guide (2013), available at https://www.adr.org/aaa/ShowPDF?doc=ADRSTG_002540 (last visited Nov. 2, 2014); AM. ARBITRATION ASS’N, Wills and Trusts: Arbitration Rules & Mediation Procedures (2014), available at https://www. adr.org/aaa/faces/aoe/commercial/financialservices/willstrusts; jsessionid=71hHJZhNzxYGKfTQGNJjJHHYv8w0Tpypp2p 5rjvy3gy5jLv5RbTv!699922394?_afrWindowId=null&_afr- Loop=2867778832291004&_afrWindowMode=0&_adf.ctrlstate= 1a0vdia7cr_4#%40%3F_afrWindowId%3Dnull%26_ a f r L o o p % 3 D 2 8 6 7 7 7 8 8 3 2 2 9 1 0 0 4 % 2 6 _ afrWindowMode%3D0%26_adf.ctrl-state%3Doecl6cmuk_4 (last visited Nov. 2, 2014).